MORE CHOOSE TO RENT
ooba show that in the second quarter banks required first-time homebuyers to put down an average cash deposit of 12.3%. That equates to R115,378 on a house of R939,936 (ooba’s average entry-level price).
So it comes as little surprise that the average age of ooba’s first-time home loan applicant is now at a relatively high 34.
Apart from a cash deposit, first-time buyers also have to stump up transaction costs. For a house priced at R1m, the transaction costs will add up as follows, says Vera Nagtegaal, executive head of Hippo.co.za, a financial services comparison website: R27,760 for transfer duties; R25,607 bond registration fees (on an R800,000 mortgage) and R5,985 bond initiation fees. With the deposit that means the average first-time buyer needs about R175,000 in cash.
Then there is also the monthly repayment, which amounts to about R7,720 on an R800,000 home loan at a 10% interest rate (current prime) financed over 20 years. That means the average first-time buyer (and his/her spouse) need to earn a combined gross monthly income of at least R24,000 to afford an entry-level home.
Nagtegaal says homeownership has been placed further out of the reach of lower- and middle-income earners by steep increases in municipal rates and utility costs in recent years. She notes that the cost of electricity alone has escalated by 87% since the beginning of 2008. “The weak economy and resultant slower pace at which young people are entering the job market are other reasons why only 12.4% of all SA homeowners are now under the age of 30,” she says.
The slump in house sales has seemingly not yet translated into falling national house prices — at least not in nominal terms. However, the house-price indices of the banks and of data analytics group Lightstone have dropped to the low single digits, which translates into a real (after-inflation) decline.
According to Lightstone average houseprice growth is now at 3.8%, down from 4.7% for 2017. FNB’S data paints a similar picture, with average house-price growth slowing to 3.7% in the first nine months of 2018 (year on year). That’s down from 4.2% in 2017 and less than half the 8.1% peak recorded by FNB during 2014 (see graph).
Loos expects price growth for 2018 as a whole to remain at about 3%-4%, which should translate into a real decline of about - 1%. He says 2018 will be the fourth consecutive year of slowing nominal house price growth and the third consecutive year of real price decline.
Loos describes the current slowdown as a “second post-bubble house-price correction phase”. That follows a far more severe first correction phase in 2008/2009 in the aftermath of the global financial crisis, when prices dropped by about 10% in nominal terms and sales volumes more than halved from the boom of 2004-2007 (see graphic).
Homeowners should brace themselves for a further steady decline in real house prices next year, given the likelihood of a still-stagnant economy and rising interest rates. In fact, Loos believes house prices are unlikely to recover in real terms until SA’S economic growth rate gets closer to 3%
(from 1.7% in 2017). Given SA’S unexpected entry into a technical recession in the second quarter, it is anyone’s guess if and when that will happen. Meanwhile, Loos is sticking to a forecast of nominal house-price growth of no more than 3.7% a year until 2020.
A continued weak housing market is not only bad news for homeowners who may have to realise a loss on the value of their bricks and mortar investment if forced to sell. It will also be felt by the fiscus in the form of lower revenues from property transaction costs. Latest figures from the National Treasury show that transfer duty revenues have already been in decline since mid-2017 with a year-on-year drop of 6.79% recorded in the three months to August this year.
But industry players say it’s not all doom and gloom as any downcycle presents buying opportunities for savvy investors.
Seeff chair Samuel Seeff says notwithstanding the country’s economic and political challenges, there are many positives for the property market. He refers to the prime interest rate of 10%, which is still way below levels compared with other periods of economic decline such as the 1990s, when interest rates surged to 25%. “And the banks are still granting more bonds,” he adds. “At the same time, there are many motivated sellers so it is a great time to buy and you don’t want to leave it too late.”
Golding echoes the sentiment, saying his group has noticed an uptick in activity in traditionally less popular areas such as the Kwazulu-natal south coast, Port Elizabeth and smaller towns along the Eastern Cape coast, as well as the whale coast and Garden Route, the East Rand and Cape Town’s northern suburbs.
He says the market is undergoing a period of change in which the upper end of the Western Cape will no longer be the primary driver of housing activity. “It is now the turn of the more affordable, less popular towns and suburbs to recover.” Renting is expected to become more expensive, but industry players say it is still 30%-40% cheaper than owning
The “rent or buy” debate becomes particularly relevant when times are tough, forcing both tenants and homeowners to weigh accommodation costs more carefully. FNB property strategist John Loos says the bank’s latest survey of estate agents suggests that a growing proportion of aspirant homeowners are holding back. And, more interesting, there has been a spike in the number of financially pressed home sellers opting not to buy another property but to rent instead. The percentage of sellers keen to rent their next home has jumped to 65.6% in the third quarter, up from 34% in early 2014 (see graph).
Loos says the trend is in line with the economic stress and general pessimism among consumers. “It’s not only a recessionary economy that has prompted more households to put home buying on the back